This Week In Securities Litigation (Week of March 1, 2021)
Later this year the United Nations will its Climate Change Conference. The event, to be held in November, was originally scheduled for last fall but was postponed in the wake of the pandemic. Perhaps by the time of the Conference the Division of Corporation Finance will have developed proposed regulations to update the Commission’s climate disclosure standards under the directive issued last week by the Acting Chair. The development of new standards in this area, which is likely to be a key topic on the world stage, could put the Commission back in step with other securities regulators around the world.
Be careful, be safe this week
SEC
Trading Suspension: The Commission suspended trading in 15 companies based on questionable and social media activity on Friday, February 26, 2021. According to the release, the agency is “proactively” monitoring for suspicious trading activity tied to social media and will “quickly” stop that trading when appropriate. None of the firm’s whose shares were suspended have filed “any information” with the Commission or OTC Markets where their shares are quoted for over one year. The list contains the names of 15 microcap issuers.
Whistleblowers: The Commission made over $1.7 million in whistleblower awards to two persons in separate proceedings, announced on February 25, 2021. A separate announcement, made on February 23, 2021), noted that a $9.2 million award was made for related actions that included an agreement with DOJ.
SEC Enforcement – Filed and Settled Actions
The Commission filed 2 new civil injunctive actions and 4 administrative proceedings last week, excluding 12j, tag-along proceedings and other similar matters.
Offering fraud: SEC v. Stewart, Civil Action No. 1:21-cv-00550 (D. Colo. Filed Feb. 24, 2021) is an action which names as a defendant Glen A. Stewart, the CEO of Wiser Investments. Over a two year period, beginning in mid-2017, Mr. Stewart sold unregistered securities issued by his firm. About $55,867 was raised from 39 retail investors. Mr. Stewart was paid about $45,853.50 in transaction based compensation. The complaint alleges violations of Securities Act Sections 5(a) and 5(c) and Exchange Act Section 15(a)(1). Defendant resolved the matter, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. He also agreed to pay disgorgement of $45,853, prejudgment interest of $5,727 and a penalty of $25,000. See Lit. Rel. No. 25036 (Feb. 24, 2021).
Microcap fraud: SEC v. Bajic, Civil Action No. 25035 (S.D.N.Y.) is a previously filed action which named as defendants Anthony Killarney and his entities, Blacklight SA, Tamarind Investments Inc and SSID Ltd. The complaint alleged a fraudulent scheme that generated over $35 million in illegal sales of stock involving at least 45 microcap firms. The Court entered a final judgment against Mr. Killarney by consent, enjoining him from future violations of Securities Act Sections 17(a)(1) and (3) and Exchange Act Section 10(b), 13(d) and 15(a). The judgment imposes a penny stock bar and monetary relief in amounts to be determined in the future. Default judgments were entered against the entities and directed that they pay disgorgement and prejudgment of over $13.5 million. Backlight was also directed to pay a penalty of $963, 837. See Lit. Rel. No. 25035 (Feb. 24, 2021).
Executive perks: In the Matter of Gulfport Energy Corp., Adm. Proc. File No. 3-2032 (February 24, 2021) is a proceeding which names as a Respondent the Oklahoma City based oil, gas and development firm. In 2014 when Michael G. Moore became CEO he repeatedly charged travel and related expenses to the firm and used company charge cards for his expenses. Overall, in excess of $650,000 in expenses were incurred and, during 2015 about $152,000 was paid to his son. Mr. Moore failed to furnish the company with sufficient information to make appropriate disclosures. He resigned in 2018. The Order alleges violations of Exchange Act Section 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a). To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. A penalty was not imposed based on cooperation. See also In the Matter of Michael G. Moore, Adm. Proc. File No. 3-20231 (February 24, 2021)(based on facts above; alleges violations of Securities Act Section 17(a)(3) and Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a); resolved with a cease-and-desist order based on the Sections cited in the Order and the payment of $88,248 penalty which will be transferred to the U.S. Treasury).
Fraudulent stock sales; SEC v. Schoengood, Civil Action No. 2:21-cv-00979 (E.D.N.Y. Filed February 23, 2021) is an action which names as defendants Bruce Schoengood, Medifirst Solutions, Inc and Joshua Tyrell. The complaint is based on two schemes. The first, conducted over a five month period beginning in late 2016, involved a sham transaction that resulted in selling millions of shares of unregistered securities. Specifically, it centered on a sham agreement under which Mr. Tyrell supposedly provided business development services to Medifirst in return for millions of shares of stock. No services were provided. Subsequently, a brokerage firm was told that the services were furnished. Overall, about 19 million shares of Medifirst stock were sold yielding about $125,000. In the second, beginning in mid- 2017, Mr. Schoengood arranged through a stock promoter to have a third party purchase Medifirst stock in exchange for cash to manipulate the stock. The complaint alleges violations of Securities Act Sections 5(a) and 5(c) and each subsection of 17(a) and Exchange Act Sections 9(a)(2) and 10(b). The case is pending. See Lt. Rel. No. 25034 (Feb. 24, 2021).
Audit failure: In the Matter of Christopher L. Stanley, Adm. Proc. File No. 3-20229 (February 23, 2021) is a proceeding against the big 4 accounting firm audit partner for an engagement to audit the financial statements of non-profit College of New Rochelle. During fiscal year 2015 the Controller of the College engaged in a fraudulent scheme that resulted in false statements and omissions in the accounts and an enforcement action by the Commission. During the audit the engagement team had not completed the work because of difficulties with the available information and papers. When told that the engagement had to be completed by the College Respondent issued a clean opinion. The Order found that Respondent engaged in improper professional conduct as defined in Rule 102(2)(1)(ii). Respondent was suspended from appearing or practicing before the Commission as an accountant. He can apply for reinstatement after three years. See also In the Matter of Jennifer M. Stewart, CPA, Adm. Proc. File No. 3-230 (February 23, 2021)(proceeding against senior manager on the engagement above alleging violations of same Rule; resolved with a suspension with the right to apply for reinstatement after one year).
Australia
Immunity: The Australian Securities and Investment Commission announced a new immunity policy for certain market misconduct offenses. The new policy will, under certain circumstances, provide immunity from civil and criminal prosecution for market manipulation, insider trading and misconduct. The new policy is designed to assist the ASIC in identifying and taking enforcement action against specific markets and financial services breaches, according to the February 24, 2021 announcement (here).
Hong Kong
MOU: The Securities and Futures Commission and the Financial Reporting Counsel concluded an MOU designed to strengthen regulation of capital markets through the collaboration of the two regulators. The arrangement was announced on February 25, 2021 (here).
Report: On February 23, 2021 the Securities and Futures Commission announced the issuance of its quarterly report (here).